Depositor Behaviour and Interest Rate and Liquidity Risks in the Financial System

Lessons from the March 2023 banking turmoil

Over 2022 and 2023, interest rates rose significantly in a number of advanced economies, following a decade where rates had remained at historically low levels. Rate increases were higher and faster than generally expected, resulting in significant valuation losses and sometimes precipitous increases in funding costs or liquidity risks. A number of bank deposit runs took place in the period following these interest rate rises, which represented the most serious disruption to the banking sector in more than a decade.

This report summarises the main findings from FSB work over the past year to:

• Assess vulnerabilities in the global financial system from the intersection of solvency and liquidity risks in an environment of higher interest rates;
• Investigate the deposit runs, including the role of technology, social media and interest rates on depositor behaviour; and
• Assess how the use of technologies may affect banks’ and authorities’ planning and execution of a resolution.